A normalised cash flow is the representative, recurring free cash flow of a business after adjusting for non-recurring items, working capital anomalies and capex irregularities — the sustainable level of cash generation that can be projected forward with confidence. In DCF valuation, the normalised cash flow is the basis for the terminal value calculation: it represents the steady-state cash generation once growth has moderated and capex has stabilised at maintenance level. Its construction requires multi-year analysis and careful distinction between recurring and transient cash flow drivers.

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Example: a Swiss industrial SME generates highly variable annual free cash flows: CHF 0.8M, 1.6M, 2.1M and 1.3M over 4 years — driven by lumpy capex and working capital swings. Normalising for these volatility sources produces a recurring FCF of CHF 1.5 million. Capitalised at 9.5% WACC less 2.0% terminal growth, this normalised cash flow generates a terminal value of CHF 20.0 million — representing 71% of the total DCF enterprise value.

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Hectelion builds normalised cash flow profiles with granular analysis of capex and working capital cycles, producing defensible terminal values in every DCF engagement.